The running list of terminology and names for us to master during this unit. Student-added terms are in black.
broker stock stock exchange - a marketplace for stocks (and other securities) index market - system designed to facilitate the efficient allocation of capital capital - the wealth,whether in money or property, owned or employed in business by an individual, firm, or corporation
rating agency (credit rating agency)- Organization responsible for assessing the quality/risk of the companies that issue securities that are based on debt obligations, and the securities themselves. From Investopedia: credit ratings "provide individual and institutional investors with information that assists them in determining whether issuers of debt obligations and fixed-income securities will be able to meet their obligations with respect to those securities. Credit rating agencies provide investors with objective analyses and independent assessments of companies and countries that issue such securities."
Article from the Federal Trade Commission website here. Examples: Moody's (article that claims "Moody’s credit ratings for new and existing corporate bonds are significantly more favorable to issuers relative to S&P’s, after Moody’s initial public offering (IPO) in 2000"), Standard & Poor's, Fitch. Moody's and S&P each have 40% of the ratings market, and Fitch 14%, so the three of them account for almost 95% of the ratings market (as of 2004, according to WashPo article). credit rating - an assessment of the quality/risk of a security, a company, a nation, or an individual. (See above.) The top rating for a security, company, or nation is AAA, which goes with benefits like paying lower interest rates and having looser capital-allocation requirements. Bottom ratings are "junk". (For personal credit ratings, the scale is numerical, with the top score in the 900s. It is also called a FICO rating.) Ratings are based on payment of bills, historical financial responsibility, etc.
share shareholder dividend speculation stop-loss - set by a stock owner to say "I want to sell my shares if the price drops below X"; it triggers an automatic sale (at the broker's) short selling "bear" and "bull" Fortune 500 hedge fund derivative - a financial instrument that is effectively a side-bet (as defined on the 60 Minutes episode). The example given is "the bet that people will default on their mortgages." An investor can hedge on that bet -- protect yourself in case you lose -- by buying a "credit default swap", which is insurance against the mortgage (credit) going bad (defaulting). option - a derivative that represents a contract sold by one party (option writer) to another party (option holder), which offers the buyer the right, but not the obligation, to buy (call) or sell (put) a security or other financial asset at an agreed-upon price (the strike price) duing a certain period of time or on a specific date (exercise date). << definition and more information from Investopedia. call, put, strike price, exercise date - see option, above Dow Jones - company best known for running the biggest stock market (Dow Jones Industrial Average), based on share price of 30 biggest companies; history here Wall Street regulation insider trading - stock transactions made with illegally-obtained information that people are not allowed to use. The SEC's own definition here. Check out thisarticle about insider trading and //Wall Street//. NASDAQ S&P 500 Ponzi scheme - what Bernard Madoff was convicted of unemployment jobs stimulus package national debt deficit bankruptcy mortgage income tax subprime loan foreclosure bailout demand-side SEC - governmental agency that monitors the financial markets for bad acts (like Bud Fox's insider trading, Martha Stewart, etc.) venture capital - funds flowing into a company (before it has gone public) in the form of an investment, not a loan "go public" - to have an IPO (see below) IPO(initial public offering) - from Investopedia: "The first sale of stock by a private company to the public. IPOs are often issued by smaller, younger companies seeking the capital to expand, but can also be done by large privately owned companies looking to become publicly traded." bid/ask - the "bid" is what a potential buyer of a stock is willing to pay; the "ask" is what a current owner of a stock would like to be paid. When an asker finds a bid that is acceptable to him or her, a stock trade happens -- all of this is facilitated by a broker. Refer to: Mr. Simkins' presentation on trading. takeover (including "hostile takeover") mergers & acquisitions correction- fundamentals of stocks are correcting to where they "should be"; previously over-inflated and over-valued diversify quant - as in "quantify": mathematically adept investment researchers; mentioned in Wall Street very briefly, and referred to in some detail in an interview on NPR's Fresh Air. greenmail - mentioned in Wall Street, in the showdown between Gekko and Wildman; defined by Connie Bruck in Predators' Ball as [insert definition here] credit default swap - a type of insurance that can be bought to protect investors against big debts (corporate debt, mortgage-backed securities, etc.) going bad, that is, defaulting or being unable to be paid. More details: a definition here. refinancing - replacing a loan with a more favorable loan. The idea is that you have to pay interest on a loan, so if you can pay less interest by getting a different loan, you can refinance to make that happen and then save money. The act of refinancing does cost you a fee, so you would only do this if your savings in interest is greater than your expense in fees. GSE - government-supported enterprise, the most famous of which (in this context) are Fannie Mae and Freddie Mac; operate as businesses, but with government support (this was part of McLean/Nocera's argument in All the Devils Are Here) it doesn't have the downside risk that an independent business has and thus may feel free to take risks that are too dangerous, and thus may lead to potential bailout situations venture capital - capital invested at the beginning of a new business venture (commercial enterprise) by individuals or organizations other than those who own the new enterprise public vs. private company - private company is traded on a stock exchange
debt treasury bills, treasury notes, treasury bonds - securities that indicate government debt, some of which is held by (bought by and thus owed to) the public, foreign governments, the Social Security fund, etc. Good article on this and especially on foreign holdings of American government debt at this link. credit discipline, fitness, capability interest - "the cost of money" mortgage- a loan for the purpose of buying a home (a conveyance of an interest in property as security for the repayment of money borrowed
[Dictionary.com]) downpayment mortgage bond collateralized debt obligation (CDO)
1920s-30s Names: Herbert Hoover John Maynard Keynes Roger Babson- predicted crash Thomas Lamont Charles Mitchell Richard Whitney- VP of NY Stock Exchange- helped recover crash temporarily along with other bankers William C. Durant- General Motors founder; lost large amounts of money from the crash Jesse Livermore- committed suicide in 1940
Modern Day Names: Alan Greenspan - longtime chairman of the Federal Reserve ("The Fed") for seventeen years, through the Reagan, Bush I, and Clinton presidencies (all three presidents appointed and re-appointed him). Greenspan, very pro-capitalism, has been credited with helping to guide a very powerful growth in the economy...but also to promote deregulation that led to -- for example -- the Commodity Futures Modernization Act of 2000 (see below), which made possible the crash that bottomed out in 2007-2009. Ben Bernanke Henry Paulson Tim Geithner John Kenneth Galbraith - 20th century economist, historian of the Great Depression Warren Buffet - invested billions into Goldman Sachs during recession
Jim Cramer - charismatic, energetic TV expert on investing (CNBC, show called "Mad Money") Bernard Madoff
Modern Day Terms:
Enron - collapsed company whose story was depicted in McLean/Elkind's Smartest Guys in the Room
Commodity Futures Modernization Act of 2000 - Congress passed a bill that exempted the financial industry from being regulated on derivatives and swaps and other such financial instruments. This (as described in 60 Minutes) led to things getting out of control within the eight years. It was passed without a single no vote from either party in the Senate. AIG - Fannie Mae (FNMA) - Freddie Mac (FHLMC) -
The running list of terminology and names for us to master during this unit. Student-added terms are in black.
broker
stock
stock exchange - a marketplace for stocks (and other securities)
index
market - system designed to facilitate the efficient allocation of capital
capital - the wealth,whether in money or property, owned or employed in business by an individual, firm, or corporation
rating agency (credit rating agency)- Organization responsible for assessing the quality/risk of the companies that issue securities that are based on debt obligations, and the securities themselves. From Investopedia: credit ratings "provide individual and institutional investors with information that assists them in determining whether issuers of debt obligations and fixed-income securities will be able to meet their obligations with respect to those securities. Credit rating agencies provide investors with objective analyses and independent assessments of companies and countries that issue such securities."
Article from the Federal Trade Commission website here. Examples: Moody's (article that claims "Moody’s credit ratings for new and existing corporate bonds are significantly more favorable to issuers relative to S&P’s, after Moody’s initial public offering (IPO) in 2000"), Standard & Poor's, Fitch. Moody's and S&P each have 40% of the ratings market, and Fitch 14%, so the three of them account for almost 95% of the ratings market (as of 2004, according to WashPo article).
credit rating - an assessment of the quality/risk of a security, a company, a nation, or an individual. (See above.) The top rating for a security, company, or nation is AAA, which goes with benefits like paying lower interest rates and having looser capital-allocation requirements. Bottom ratings are "junk". (For personal credit ratings, the scale is numerical, with the top score in the 900s. It is also called a FICO rating.) Ratings are based on payment of bills, historical financial responsibility, etc.
share
shareholder
dividend
speculation
stop-loss - set by a stock owner to say "I want to sell my shares if the price drops below X"; it triggers an automatic sale (at the broker's)
short selling
"bear" and "bull"
Fortune 500
hedge fund
derivative - a financial instrument that is effectively a side-bet (as defined on the 60 Minutes episode). The example given is "the bet that people will default on their mortgages." An investor can hedge on that bet -- protect yourself in case you lose -- by buying a "credit default swap", which is insurance against the mortgage (credit) going bad (defaulting).
option - a derivative that represents a contract sold by one party (option writer) to another party (option holder), which offers the buyer the right, but not the obligation, to buy (call) or sell (put) a security or other financial asset at an agreed-upon price (the strike price) duing a certain period of time or on a specific date (exercise date). << definition and more information from Investopedia.
call, put, strike price, exercise date - see option, above
Dow Jones - company best known for running the biggest stock market (Dow Jones Industrial Average), based on share price of 30 biggest companies; history here
Wall Street
regulation
insider trading - stock transactions made with illegally-obtained information that people are not allowed to use. The SEC's own definition here. Check out this article about insider trading and //Wall Street//.
NASDAQ
S&P 500
Ponzi scheme - what Bernard Madoff was convicted of
unemployment
jobs
stimulus package
national debt
deficit
bankruptcy
mortgage
income tax
subprime loan
foreclosure
bailout
demand-side
SEC - governmental agency that monitors the financial markets for bad acts (like Bud Fox's insider trading, Martha Stewart, etc.)
venture capital - funds flowing into a company (before it has gone public) in the form of an investment, not a loan
"go public" - to have an IPO (see below)
IPO(initial public offering) - from Investopedia: "The first sale of stock by a private company to the public. IPOs are often issued by smaller, younger companies seeking the capital to expand, but can also be done by large privately owned companies looking to become publicly traded."
bid/ask - the "bid" is what a potential buyer of a stock is willing to pay; the "ask" is what a current owner of a stock would like to be paid. When an asker finds a bid that is acceptable to him or her, a stock trade happens -- all of this is facilitated by a broker. Refer to: Mr. Simkins' presentation on trading.
takeover (including "hostile takeover")
mergers & acquisitions
correction- fundamentals of stocks are correcting to where they "should be"; previously over-inflated and over-valued
diversify
quant - as in "quantify": mathematically adept investment researchers; mentioned in Wall Street very briefly, and referred to in some detail in an interview on NPR's Fresh Air.
greenmail - mentioned in Wall Street, in the showdown between Gekko and Wildman; defined by Connie Bruck in Predators' Ball as [insert definition here]
credit default swap - a type of insurance that can be bought to protect investors against big debts (corporate debt, mortgage-backed securities, etc.) going bad, that is, defaulting or being unable to be paid. More details: a definition here.
refinancing - replacing a loan with a more favorable loan. The idea is that you have to pay interest on a loan, so if you can pay less interest by getting a different loan, you can refinance to make that happen and then save money. The act of refinancing does cost you a fee, so you would only do this if your savings in interest is greater than your expense in fees.
GSE - government-supported enterprise, the most famous of which (in this context) are Fannie Mae and Freddie Mac; operate as businesses, but with government support (this was part of McLean/Nocera's argument in All the Devils Are Here) it doesn't have the downside risk that an independent business has and thus may feel free to take risks that are too dangerous, and thus may lead to potential bailout situations
venture capital - capital invested at the beginning of a new business venture (commercial enterprise) by individuals or organizations other than those who own the new enterprise
public vs. private company - private company is traded on a stock exchange
debt
treasury bills, treasury notes, treasury bonds - securities that indicate government debt, some of which is held by (bought by and thus owed to) the public, foreign governments, the Social Security fund, etc. Good article on this and especially on foreign holdings of American government debt at this link.
credit
discipline, fitness, capability
interest - "the cost of money"
mortgage- a loan for the purpose of buying a home (a conveyance of an interest in property as security for the repayment of money borrowed
[Dictionary.com])
downpayment
mortgage bond
collateralized debt obligation (CDO)
1920s-30s Names:
Herbert Hoover
John Maynard Keynes
Roger Babson- predicted crash
Thomas Lamont
Charles Mitchell
Richard Whitney- VP of NY Stock Exchange- helped recover crash temporarily along with other bankers
William C. Durant- General Motors founder; lost large amounts of money from the crash
Jesse Livermore- committed suicide in 1940
1920s-30s-specific Terms:
"alphabet agencies" (NRA, CCC, AAA, FDIC, etc.)
"bank holiday"
Black Thursday (October 24th, 1929)
Modern Day Names:
Alan Greenspan - longtime chairman of the Federal Reserve ("The Fed") for seventeen years, through the Reagan, Bush I, and Clinton presidencies (all three presidents appointed and re-appointed him). Greenspan, very pro-capitalism, has been credited with helping to guide a very powerful growth in the economy...but also to promote deregulation that led to -- for example -- the Commodity Futures Modernization Act of 2000 (see below), which made possible the crash that bottomed out in 2007-2009.
Ben Bernanke
Henry Paulson
Tim Geithner
John Kenneth Galbraith - 20th century economist, historian of the Great Depression
Warren Buffet - invested billions into Goldman Sachs during recession
Jim Cramer - charismatic, energetic TV expert on investing (CNBC, show called "Mad Money")
Bernard Madoff
Modern Day Terms:
Enron - collapsed company whose story was depicted in McLean/Elkind's Smartest Guys in the Room
Commodity Futures Modernization Act of 2000 - Congress passed a bill that exempted the financial industry from being regulated on derivatives and swaps and other such financial instruments. This (as described in 60 Minutes) led to things getting out of control within the eight years. It was passed without a single no vote from either party in the Senate.
AIG -
Fannie Mae (FNMA) -
Freddie Mac (FHLMC) -